Shares in The Reject Shop (ASX: TRS) surged over 110% at the open after the largest discount retailer in Australia announced it is being taken over by Dollarama (TSX: DOL).
The Montreal-based dollar store chain will acquire all outstanding shares in The Reject Shop for $6.68 a share.
This represents a premium of 112% to the closing share price on 26 March and a 108% premium to the 20-day volume-weighted average price of $3.21.
The per share consideration implies an equity value of around $259 million and an enterprise value of around $189 million on a pre-AASB 16 - a lease accounting standard - basis or approximately $421 million on a post-AASB 16 basis.
The enterprise value implies a 8.9x multiple on The Reject Shop's earnings (pre-AASB 16) (and a 3.3x multiple on post-AASB 16 EBITDA) for the last twelve-month period.
Subject to a recommendation by an independent expert, the Reject Shop board will unanimously recommend the scheme of arrangement deal to shareholders, who are expected to vote on the deal on June.
The Reject Shop’s largest shareholder, Kin Group Pty Ltd (Kin Group), which controls around 20.8% of ordinary shares has informed The Reject Shop Board it intends to vote in favour of the deal.
Commenting on today’s announcement, Reject Shop chairman Steven Fisher said the offer from Dollarama, a leader in the value retail market, recognises the significant growth potential that exists for the company.
“The all-cash Scheme Consideration provides attractive value and certainty for all shareholders.”
Neil Rossy, President and CEO of Dollarama told the market that Reject Shop presents a compelling opportunity to bring its differentiated value proposition to a new market with a clear path for growth through an established platform.
“With compatible cultures and values, we are confident that the business will have an exciting future as Dollarama's new and complementary growth platform," Rossy said.
The Melbourne-based discount retailer, which started in Prahran with a single store in 1981, has 390 locations across the country and includes private-label and national brand products.
For the twelve-months ending December 29 the company generated consolidated sales of $866 million and employs over 5,000 people.
The Scheme Consideration will not be reduced by the fully franked interim dividend of $0.12 per share determined at the 1H FY25 results which is due to be paid on 1 May 2025.
The Reject Shop has a market cap of $117 million; the share price is down 28% over one year and up 12% year to date.
The stock appears to be in a Medium-term rally confirmed by multiple indicators.
Consensus is Moderate Buy.
This article does not constitute financial or product advice. You should consider independent advice before making financial decisions.
